The Price of Admission

There’s no other way to say it, this market is brutal. The S&P500 Index is down 9.61% year to date and has declined more than 17% since October. Small caps stocks are in a bear market, down more than 24% in the fourth quarter. Bonds haven’t helped. The US aggregate index is down 0.45% for the year, although bonds are up about 1.5% in the month of December. Perhaps the only place to hide is cash, where online banks are paying more than 2% interest.

Christmas is Tuesday, and we are all getting coal in our stockings. It’s enough to give me a case of the stock market blues.

Market declines are the price of admission.

If you want to earn stock market returns, you must take stock market risk. Selloffs, corrections, and bear markets are as certain as the force of gravity on the Earth. There is no reliable strategy to avoid them.

Sitting on the sidelines costs more than riding out down markets. I met a couple who were burned by a shady financial advisor during the dotcom bubble and never got back in to the market. Almost twenty years later they managed to save and accumulate more than $1 million in cash. Now they are trying to figure out how to make it last for the next twenty years. I shudder to think how much they would have if only they had invested a portion of their savings in the stock market. It would require riding out two painful bear markets, but they might have $2 million or more today.

The temptation to do something will rear its ugly head if it hasn’t already. But market timing doesn’t work. It creates two chances to be wrong; when to sell and when to get back in. Now is not a good the time to realize your portfolio is too risky for your risk tolerance. Your advisor should have had that conversation with you from the beginning.

Investments returns are earned, and declines in value are the work. So here we are, working at Christmastime to earn tomorrow’s keep. There’s no easy way to watch your life savings decline by more than you earn in a year. But take heart, dividends are reinvesting a lower prices. Savers are getting a discount on stocks compared to a few months ago. Future expected returns are higher than they were this summer.

There is no way to know if the next 10% move will be up or down, and it can certainly get worse before it gets better. But long-term investors are rewarded for their discipline. For most of us, the risk of not investing is bigger. That’s why we are here with a case of the stock market blues to end the year. And while calendar years are arbitrary marking points, they amplify a year-end market decline.

So shift your focus to friends and family as you celebrate the holidays. Turn off the boob tube, the fear mongering pundits, and the army of beautiful blonde talking heads. You already know the news. There’s a trade war, a government shutdown, an inverting yield curve, and unconventional shifts in U.S. military strategy. No need to soak up any more of that negativity.

It’s time to rest, regroup, and prepare for what’s to come in 2019. You’re going to need your game face on.

Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.